“Securities” are investment instruments issued by a corporation, government or other organization which offers equity or debt.
“Exchange” means a national, regional, or worldwide computerized marketplace where securities can be traded including for example, NASDAQ or FOREX.
“Execution” refers to completion of an order to buy or sell securities.
“Orders” are electronic orders for purchase or sale of securities.
“Filled order” means order fully executed, i.e. all shares in the order have been executed.
“Bar” means one unit of trading data. For example, 1-minute bar represents the data for one minute of trading.
“Bid price” is the highest price any buyer is willing to pay for a given security.
“Ask price” is the lowest price at which any buyer is willing to sell a given security.
“Long” is the position of owning a security.
“Short” is the position of having sold a stock without buying it first.
There are several products on the financial software market that offer to individual trader optimization and Machine Learning capabilities on the one hand, and automatic order execution capabilities on the other hand. The present invention provides the system that combines both capabilities in one product. It presents an automatic order execution system that sends orders for execution according to self-optimized trading strategy parameters determined using Machine Learning and self-optimization features. Also, it uses a unique optimization method for determining these optimized trading strategy parameters.
There is a TradeStation Automated Execution system which is allowing traders to transfer orders automatically to the marketplace according to the predetermined strategy parameters. In a fast-moving marketplace, trading conditions are changing constantly. Trading parameters that used to be valid just one day ago may not be applicable today or tomorrow. The TradeStation user has to come back and to change his trading parameters according to marketplace changes. TradeStation, contrary to the invented system, does not offer trading based on self-optimized and Machine Learning parameters.
Additionally, there are a few automatic securities trading systems that offer automatic trading opportunity for institutional market participants. These data processing systems are used by market dealers and are designed to receive market orders from a plurality of traders and to route them automatically for market execution. For example, one of the market dealer firms is receiving millions of Buy/Sell orders from a plurality of clients and it executes them automatically at the marketplace. These systems are designed to create “an automated trading market for one or more securities”. One of those systems is disclosed at U.S. Pat. No. 4,674,044. Contrary to these systems, our invented system is designed for automatic order transition and execution from the trader's computer to the marketplace.
There are several trading software products using various optimization methods to achieve optimal trading parameters. For example, OmniTrader software is optimizing predetermined trading strategy parameters and produces Buy/Sell order for a plurality of securities. However, it does not send these Buy/Sell orders to the marketplace without human intervention. The trader has to check trade signal parameters, to open another trading software, to insert order parameters and particulars for the specific security into the order execution box and to click on Buy/Sell button to send the order to his broker or investment bank.
In the past, market traders were largely dependent on information is supplied directly from the database of transactions in a form selected primarily for ease in communication. Online data providing supplied traders with market real-time information in a matter of seconds or even milliseconds thus providing rapid trading order execution. The trading of financial instruments such as stocks, currencies, options, futures and commodities has largely become a computer-supported operation. Almost all significant trading of securities is accomplished by a computer pursuant to the established protocols of the major exchanges.
There are various modes of buying or selling (“trading”) securities. Aside from inter-party private transactions, trading is typically engaged on a national or regional exchange. The principles of this invention are generically applicable to securities trading in any market where orders can be send using computer.
For purposes of illustration only, hereafter we concentrate on two biggest markets: electronic stock market exchanges and foreign currency exchange (FOREX) but the present invention relates in the same manner to trading of other financial instruments on other computerized markets.
Computerized or electronic exchanges utilize electronic access of dealer posted market prices without a negotiating specialist or floor based exchange. The largest of these is the National Association of Securities Dealers Automated Quotation system, or NASDAQ. NASDAQ is a totally computer-based market where each member dealer (called market maker) can make its own market in the stocks traded on the exchange through a computer network.
A trader can route his orders to NASDAQ through one of the market makers or ECNs, or through one of the special electronic systems: SOES and SelectNet.
SOES (Small Order Execution System) is implemented by NASDAQ for orders up to 5,000 shares in order to help the small investor have his or her transactions executed without allowing market makers to take advantage of said small investor.
SelectNet, a negotiated system maintained by NASDAQ is a dialogue between the trader and the market makers for reflecting a bid or an offer. Only participating market makers can see trader's order.
On the New York Stock Exchange (NYSE), orders for specific securities are entered at a terminal operated by a licensed agent with a “seat” on the exchange. The order is processed through a stock “specialist”, a firm that is obligated to manage transactions for a given security and the computerized order could be transmitted to NYSE through a “specialist” or ECNs.
The American Stock Exchange (AMEX) like the NYSE uses a “specialist” to maintain market liquidity. A computerized order could be sent to AMEX similarly as to NYSE.
Another important method of gaining access to all three major US exchanges (NASDAQ, NYSE and AMEX) is through one of the ECNs (Electronic Communications Networks). ECN is a private computerized trading system maintained separately from the public markets. An ECN is an order matching service that provides liquidity only by matching orders rather than by maintaining inventory.
FOREX market is the largest financial marketplace in the world today with daily average turnover of over $US1 trillion. The FOREX market is considered an OverTheCounter (OTC) or “interbank” market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets. FOREX trading has evolved a great deal in the past five years. Similarly to stock markets, it became largely a computer-based operation. Most FOREX trading firms are offering now online trading platforms to enable their clients to deal online.
As previously indicated, we described hereby two biggest marketplaces in the world—FOREX and stock markets. Nevertheless, the principles of current invention are applicable to other computerized exchanges.